Desarrollo económico y crecimiento poblacional

In my thesis I consider the problem of creditor holdouts in sovereign debt restructurings and minority creditors who free ride on restructuring processes paid for by the majority creditors and the sovereign debtor. I examine whether legislation from Belgium, the UK and a euro area treaty has been successful in limiting the number of minority creditors who hold out from restructuring processes and litigate to obtain full payment under the original non-restructured loan agreement.

In chapter 3, I discussed the effectiveness of the three legislative initiatives. This analysis was based on the legal framework of sovereign debt as it was prior to 2010. I found that the Bel- gian Act, the UK Act and the euro area Model Collective Action Clause (CAC) cover differ- ent situations in which a holdout creditor may impede sovereign debt restructuring and ham- per the positive impact of such restructuring. I concluded that the legislation in Belgium and the UK is quite narrow and only has a limited effect on overall incentives for creditors to par- ticipate in sovereign debt restructurings and refrain from sovereign debt litigation to obtain full payment under a non-restructured bond. The euro area Model CAC, on the other hand, is more comprehensive and powerful, because it aims to limit holdout opportunities for minority creditors by making it possible for the majority of the creditors to bind the minority to partici- pate in a restructuring. The overall conclusion, based on a theoretical analysis of the three legislative approaches, is that all of them correct some of the negative consequences of credi- tors holding out from restructuring processes. There are still several loopholes, however, leav- ing various opportunities for creditors to successfully hold out from restructuring processes and subsequently litigate.

My general and theoretical analysis indicates that there is a need for stronger regulation to obtain sufficient incentives to ensure successful sovereign debt restructurings and to dissuade minority creditors from free-riding on necessary restructuring processes. In section 3.4.2, I looked at empirical data on sovereign debt restructurings, sovereign debt litigation and hold- out behaviour from 1980 to 2010, allowing me to test the conclusions of the general analysis. The data indicates that the problem of holdout creditors is relatively limited, which may sug- gest that introducing new regulation to ensure that all creditors take part in debt restructurings is unnecessary. I argue that one of the reasons why relatively few creditors litigate against a defaulting sovereign is that the rules on sovereign immunity from attachment make it difficult in practice for creditors to execute a sovereign debt judgment. The most important findings showed that the number of sovereign defaults and restructurings has gone down in the last ten years, but that there has been an increase in default-related creditor litigation. At the same time, the overall number of sovereign debt restructurings and the average time required to conclude such restructurings is relatively low. This indicates that the contractual, market-

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based approach with voluntary restructurings has worked reasonably well in securing creditor participation and avoiding protracted negotiations. 245

While chapter 3 deals with the situation prior to 2010, chapter 4 turns to legal developments since 2010. In the latter chapter, I examined certain legal proceedings and discussed whether these may have an impact on 1) the future participation of creditors in sovereign debt restruc- turings and 2) the effectiveness of the examined legislation in handling the problems raised by these more recent developments. The focus of this chapter was on the outcome of litigation before the New York District Court and the International Centre for Investment Disputes (IC- SID) in NML Capital, Ltd. V. the Republic of Argentina and Abaclat and Others v. Argentina respectively. I argue that the novel interpretation of the pari passu clause adopted by the New York District Court, and the injunction issued in relation to it, represent new and strong legal tools for minority creditors who seek to hold out from restructurings to obtain full repayment under a non-restructured loan agreement. According to the District Court’s interpretation, the pari passu clause gives holdout creditors a right to be paid in accordance with the non- restructured loan agreement, if the debtor chooses to pay the creditors who have accepted a restructuring. When such a right is combined with an injunction that also binds third parties, such as the injunction issued by the District Court, the chances of holdout creditors succeed- ing in their claims for full repayment will significantly improve. One of the findings in chap- ter 3 was that sovereign immunity from attachment remains an important practical obstacle for creditors seeking to execute a sovereign judgment. I argue that the main reason why the pari passu interpretation, combined with a strong injunction binding third parties, is such a forceful tool is the fact that the injunction circumvents these rules on sovereign immunity. In examining Belgian and UK legislation in chapter 4, I found that they have a limited effect on the increased incentives to hold out from sovereign debt restructurings introduced by the NML Capital case. Because CACs, like the pari passu clause, are contractual provisions, they are able to bind minority creditors in sovereign debt restructurings and deter sovereign debt litigation. Increased implementation of CACs, and strengthening of CACs themselves, may correct the increased incentives for creditors to hold out from sovereign debt restructurings that are introduced by the District Court’s ruling in the NML Capital case. A 2013 IMF report on sovereign debt restructuring supports my conclusion that there has been an increase in in- centives for creditors to hold out by stating that ‘[t]he ongoing Argentina litigation has exac- erbated the collective action problem, by increasing leverage of holdout creditors’.246

In the same report, the IMF also admits that ‘while creditor participation has been adequate in recent

245 _{See IMF (2013) 26-27.} 246

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restructurings, the current contractual, market-based approach to debt restructuring is becom- ing less potent in overcoming collective action problems, especially in pre-default cases’.247

One of the solutions put forward by the IMF to overcome the problems that have arisen as a consequence of these legal developments is to strengthen CACs with a single limb voting procedure. It is more difficult for creditors to obtain a blocking position when there are no requirements for a majority in favour of restructuring within each series, but only on an ag- gregated basis. For this reason, and as discussed in section 3.3.3.1, an aggregated single-limb voting procedure is likely to improve the chances of successful debt restructuring.

The IMF report does not discuss the legal consequences of the rulings in certain sovereign debt disputes before the International Centre for Settlement of Investment Disputes (ICSID). After the Argentine default, sovereign debt disputes were brought before ICSID and for the first time ICSID accepted jurisdiction over such disputes. Whether or not ICSID will accept disputes over sovereign debt (sovereign bonds) in the future remains unsettled, but if it does I argue that it may disrupt the current system of sovereign debt restructuring, which relies on a voluntary contractual approach. The reason for this is that when ICSID handles a dispute, it considers whether or not there has been a breach of an investment treaty. In doing this it may disregard contractual terms, such as CACs, and it may therefore also end up invalidating a restructuring agreement made on the basis of CACs. Of the three legislative initiatives exam- ined in this thesis, I concluded that the euro area Model CAC is the most potent legislation with respect to limiting the problem of creditors holding out from restructuring processes and litigating for full payment. As previously explained, the IMF, ICMA and the EU through the euro area Model CAC, rely primarily on CACs to reduce the collective action problems dur- ing debt restructurings and holdout litigation. Recourse to ICSID arbitration in sovereign debt disputes may thus create a legal gap in the international community’s efforts to limit the prob- lem of minority creditors holding out from restructuring processes.248 In addition to weaken- ing the existing tools that contributes to limiting hold out problems, a situation in which IC- SID accepts jurisdiction over sovereign debt disputes may also further strengthen the incen- tive for creditors to hold out from restructuring processes because 1) the equal treatment fea- tures, which are important parts of investment treaties, may make it more difficult for credi- tors to agree on a restructuring offer, and 2) because ICSID awards are deemed easier to exe- cute compared to national and municipal judgments and other arbitral awards. With this in mind, I argue that the legal developments in the aftermath of the Argentine default in 2001 and the subsequent litigation, have led to a situation where the incentives to take part in re- structuring processes have been weakened.

247 _{ibid 2.}

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With respect to the legislation examined in chapter 3, I conclude that the legislation in Bel- gium and the UK will probably not be affected if ICSID starts to accept jurisdiction over sov- ereign debt disputes. Given that an ICSID tribunal can disregard a CAC, however, it is clear that the euro area Model CAC may become less effective.

To sum up, in my thesis I conclude that legislation in both Belgium and the UK is quite nar- row and does not manage (or even attempt) to affect the overall incentives for minority credi- tors to participate in sovereign debt restructurings and not litigate for full payment under the original non- restructured loan agreement. The euro area Model CAC, though it could be strengthened in various ways, is a more comprehensive tool and may significantly improve the likelihood of obtaining a successful restructuring. However, the legal developments that have taken place in the sphere of sovereign debt disputes since 2010 have disrupted the volun- tary system of sovereign debt restructurings. I argue that the legal developments (the pari pas- su interpretation, the injunction and the possibility of ICSID accepting jurisdiction over sov- ereign debt disputes) have strengthened the creditor’s right to hold out from sovereign debt restructurings and claim full payment. Even CACs, believed to be the most potent tool to deal with holdout behaviour and free-riding during sovereign debt restructurings, are in danger of losing their effectiveness.

Compared to international trade, international finance is subject to very little international regulation. The analysis in this thesis shows that the sphere of sovereign debt is quite complex and fragmented, and that it is difficult to establish national rules that are capable of respond- ing to international challenges. The main observation that can be drawn from my thesis is that there seems to be a need for stronger international cooperation to deal with the problem of holdout creditors in sovereign debt restructurings.